LITERATURE
REVIEW
The need to review related literature
and works done by other arises from the need to have a framework that acts as a
guide into the investigation of the impact of foreign aid on poverty. This
would not only give an insight into the present study but would also provide us
with theoretical background.
THEORETICAL REVIEW
ECONOMIC PERFORMANCE HISTORY
Nigeria is endowed with an
extremely large supply of oil reserves. The oil and gas sector make up 99
percent of export revenues and 52 percent of GDP (World Bank Group, 2008).
Hauser E.M. (2009) noted that the agricultural sector is the largest employer
and that small
scale farmers produce roughly 90 percent of the country’s food,
yet it remains largely underdeveloped and inefficient, lacking even simple
irrigation system.
Although, Nigeria’s economy has proven to be
extremely volatile since independence in 1960, the economy has interestingly
seen a greater frequency of growth acceleration than deceleration from the
period of 1976 to 2005. According to Bienen (1985), in the wake of surging oil
revenues, the Nigerian government has sough to expand the economy by investing
in welfare and ground work policies particularly in the non-oil sector.
Political pressure on the military regime, however forced it to spend money quickly
which inevitably led to the disproportionate channelling to urban areas where
political pressures were greater. The total debt from 1970 to 1985 increased
from $573 million to $13,432 million (Devarajan et al. 2001).
In 1985, General Ibrahim Babangida
took over power in a military coup and issued a 15mouth state of emergency in
October of the same year. Faced with several fiscal challenges including an
enormous debt crisis, he was forced to implement reform under the recognition
that amends must be made with the IMF. While Nigeria has no obligation to the
IMF, their approval was nonetheless critical as they had considerable leverage
to persuade private donors to grant debt rescheduling. Mosley (1992) argued
that this led to the birth of the structural adjustment program and it included
reduction of the budget deficit, partial liberalization of interest rates,
movement to a free-market exchange rate, the removal of import quotas, tariff reductions,
reduction of the fertilizer subsidy, government withdrawal to invigorate direct
agricultural production, a ban on food imports including wheat, rice and maize
and the closure of commodity marketing boards.
There was popular disapproval, mass
rioting spread throughout all sectors of society during 1988 and 1989. This
proved to be disastrous for the Nigerian political system and thus policy
reversals were used to calm the public which later led to the breakdown of
structural adjustment reforms in 1990. These events accompanied by irregular political
transition in 1993 to General Abacha brought debt rescheduling and
international aid to zero (Devarajan, 2001).